"Game Changers Impacting and Igniting SME Businesses and Brands”

Small hotels continue to feel the squeeze

Despite a seven person rise in stopover visitors intended to stay in hotel accommodations and a 2.7 per cent increase in average occupancy levels to 60.5 per cent last year, small hotel operators continue to be squeezed by limited access to financing, high costs of utilities and crime.

According to annual travel statistics published by the Jamaica Tourist Board (JTB), hotels with less than 50 rooms recorded occupancy rate of 27.6 per cent in 2010, which was lower than the 27.8 per cent the year before, while hotels with 50 to 100 rooms achieved a rate of 35.5 per cent, down from 41.7 per cent. Hotels with over 100 rooms recorded 65.9 per cent rate of occupancy, up from 60.4 per cent in 2009.

“Occupancy levels (at smaller hotels) barely ever reached 32-33 per cent,” asserted Jamaica Hotel and Tourism Association president, Evelyn Smith. “There are several problems — the high cost of operating a small property, including electricy, water and security. A small property needs its visitors to enjoy everything in terms of being interrelated with community.”

The fact that small hotel operators are barely able to survive with low occupancy rates is inimical to a growing need to increase linkages between tourism and other sectors, which is more realisable among small and medium-sized enterprises (SMEs).

According to a World Bank report titled Jamaica Country Economic Memorandum: Unlocking Growth, the tourism sector’s linkages to the overall economy are weak in Jamaica, estimates place the multiplier for Jamaica’s tourism sector at one and 1.1, that is, for every $1 spent by this sector, $1 in output is generated from other sectors. It is higher in other Caribbean countries: 1.27 in Barbados, 1.18 in Antigua and Barbuda, and 1.18 in Dominica. Outside of the region, estimates place the multiplier at 1.96 in the UK and 1.72 in Ireland.

But the report goes on to highlight that Jamaica “has strong potential to offer a wide variety of tourism experiences, although much of it remains unrealised. Jamaica’s advantages include year-round warm weather, its association with romance, its rich culture (music), its rich fauna and flora (Jamaica reputedly has the highest number of endemic species of birds on an island in the Western Hemisphere, including 106 species that exist nowhere else), and its heritage assets”.

” Jamaica’s major advantages include the government’s prioritisation of travel and tourism in the form of development policies and share of the national budget, cultural affinity for travel and tourism, ease of visa requirements, and bilateral air service agreements,” continued the report. “Major disadvantages include ineffective use of natural and cultural resources for differentiating the tourism experience (including the relative lack of UNESCO world heritage sites), a very high rate of brain drain (especially among university educated people), safety and security, high HIV/AIDS rate, and weak human resources.”

Jamaica’s homicide rate is certainly among the highest in the world, with adverse consequences for investment and development and more immediately impacts tourism.

For instance, tourism arrivals declined 2.5 per cent after the government’s pursuit, capture, and eventual extradition to the United States of Christopher ‘Dudus’ Coke, an event that left more than 70 people dead in Kingston. Before this happened, arrivals had increased by 7.3 percent from January to April.

“A safe place to live is a safe place to visit,” said Smith in emphasising the importance of addressing crime for tourism development.

However, while crime impacts most business areas and industries, small hotels have issues that are more unique to them.

“Small hotels dont have economies of scale,” Smith explained to the Business Observer. “Being more personal means they have a higher employee per room count. They don’t import much (buy locally such as the farmers market in Negril) but they are not able to benefit from mass distributor that could supply goods such as furntiure.

The World Bank document pointed to attempts being made by smaller hotels to organise a joint purchasing of inputs (e.g. bed sheets, toiletries) meeting significant challenges related to trust issues, despite potential economic gains from collaboration.

“Participating hotels in cluster initiatives have engaged in joint activities such as input purchasing and web site development, but they have not moved beyond a brief period of momentum as firms started to engage in side dealings, competing with and undermining the cluster initiative,” said the report. “To counter this lack of business ethics, firms suggested the signing of a code ethics or “non-compete” agreements as necessary steps at the outset of cluster initiatives.”

Without effective co-operatives, not only can’t small hotels lower input costs they can’t pool resources to get much needed marketing.

“Some have not been able to bridge the gap from being tour opeators dependent to using other means, such as social networking tools,” Smith told the Business Observer last week while noting that reliance on destination marketing could become more detrimental to small hotels.

“Enough funds not going to JTB full stop. There are not enough resources for country destination marketing and definitely not enough for specific to resort areas,” She added.

Jamaica has six resort areas: Negril, Montego Bay, Ocho Rios, Port Antonio, Kingston and Mandeville, and the South Coast. At the same time, JTB’s budget for overseas marketing has shrunk over the years — from $1.3 billion in 2007/2008 to $683.6 million in 2009/2010 which would have been cut to $654 million in 2010/2011, if emergency marketing didn’t become necessary to offset the impact of the Dudus extradition matter. The Government upped the provision to $963.7 million this year.

Another major issue for small operators is the lack of financing available to them.

“Cost of money is high,” said Smith of interest rates that she believes needs “to go down to very low singel digits… they don’t have funds to upgrade to be competitive.”

The World Bank, in its report, suggestd that the Government “could improve access to existing funding mechanisms that promote sustainable tourism, such as the Tourism Enhancement Fund”. It also pointed to the Global Environment Facility (GEF) funds which provide approximately US$2 billion in grants and concessional funding “to cover incremental or

additional costs associated with transforming a project with national benefits into one with environment benefits”.

The report added: “Green funds could be used to increase private participation in improving sustainable tourism. They are global, private-sector driven mechanisms to increase access to finance in providing environmental sustainability. One example is New Venture Funds (NVF) India, an initiative by the World Resource Institute (WRI) that transfers capital to business to deliver social and environmental benefits to the “bottom of the pyramid” (SMEs) in the areas of eco-tourism, renewable energy, clean technologies, and water management. NVF launched a Green Investor Network, matching SMEs in developing countries with investors worldwide. It also organises the annual Call for Business Plans in target sectors seeking investment of US$100,000 to US$5 million, thus creating industry role models”.

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